Spotify founders slam Swedish business climate

MatthiasVerbergt

STOCKHOLM -- It's not just music streaming out of Spotify AB. So are complaints about doing business in Sweden.

In an open letter published on Tuesday, Daniel Ek and Martin Lorentzon warned the music-streaming company they founded a decade ago may turn its back on the Nordic nation unless authorities take swift action to make the business environment more hospitable for technology companies. The letter was addressed to all Swedish politicians.

The source of the gripes: A congested housing market in Stockholm that makes it hard to lure foreign talent. An education system in which the study of handicraft is compulsory but learning computer programming isn't. A punishing tax regime, especially when stock options are involved.

This bout of public wailing is highly unusual in Sweden, a country where decisions are typically made after a long process of consensus building.

But the two Spotify founders, who incorporated their company in tax-friendly Luxembourg but maintain operational headquarters in Stockholm, voiced frustrations that talks with Swedish politicians so far have yielded no concrete results.

"If no changes are made, we will have to consider expanding more in other countries than in Sweden," Messrs. Ek and Lorentzon wrote in Swedish on Medium, an online-blogging platform.

From Madrid to Paris to Berlin, European governments have been trying to create favorable environments in which fledgling tech companies can find the financial and labor resources they need without crossing the Atlantic Ocean. The effort has produced a number mega-startups whose valuations exceed $1 billion.

But many European companies are struggling to spring onto the global stage.

"At the moment, we lack the scale to compete with other ecosystems like China or the U.S.," Andrus Ansip, the European Union's digital chief, said in a recent speech.

Sweden has been one of Europe's most prolific grounds for technology startups. Klarna, a payment company, was also started here.

Founded in 2006, Spotify provides music-streaming services and competes with the likes of Apple. About 850 of its 2,000 employees are based in Stockholm. The company recently raised $1 billion in convertible debt from investors.

Many of Sweden's tech startups have fallen into the hands of U.S. companies that boast stronger financial firepower.

Mojang AB, the company behind the computer game Minecraft, was bought by Microsoft Corp. in 2014 for more than $2 billion. King Digital Entertainment PLC, the maker of the Candy Crush mobile games, was purchased by Activision Blizzard Inc. for nearly $6 billion in November.

Spotify's founders said it was "crazy" that a tech giant hadn't yet come out of Europe. "We want to show it can be done," they wrote.

Sweden's Minister for Enterprise, Mikael Damberg, said he could agree only with the founders' complaints over the tight property market.

"They are spot on: The biggest growth problem of Stockholm today is the housing situation," he said in a telephone interview.

The government has a plan to provide 3.2 billion kronor ($396 million) a year to support the construction of 15,000 rental apartments a year until 2020, he said. On stock options, which are subject to income tax and payroll taxes in Sweden, Mr. Damberg said the issue was currently under consultation.

Klarna, which has offices world-wide, echoed the recriminations.

"Preferably we would like to hire more people in Stockholm," Klarna Chief Executive Sebastian Siemiatkowski said. "But the taxation and housing issues are pushing that decision to another place."

Spurred by very low interest rates and an economy growing at close to 4% a year, apartment prices in central Stockholm rose 17% in 2015 and 10% in 2014, according to price-tracking company Svensk Maklarstatistik AB.

"We knew that the problem existed, but we didn't realize how bad it was, " said Lukas Ohlsson, a spokesman for CupoNation. The German online-savings platform recently aborted a plan to move 30 of its 250 employees to Stockholm after finding it couldn't help them find affordable housing.

At Klarna, Mr. Siemiatkowski said apartment hunting had become one of his top concerns.

Over the weekend, he guided a potential recruit through Stockholm, but lamented he had little places of interest to show the person's family.

"I'm extremely worried that the person will turn down the offer," Mr. Siemiatkowski said.

Write to Matthias Verbergt at Matthias.Verbergt@wsj.com and Charles Duxbury at charles.duxbury@wsj.com

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